Medicaid expansion entails significant costs to consumers

In 15 states that have yet to participate in Medicaid expansion, the momentum behind expansion is greater than ever. Some examples:

On March 25, the Georgia legislature approved Gov. Brian Kemp’s bill, giving his office the ability to pursue waiver programs that many hope will allow for Medicaid expansion. The bill is expected to become law July 1. On April 19, attorneys filed a ballot initiative in Oklahoma on Medicaid expansion. In Montana, Medicaid expansion began in 2015, but it was a contested issue. A bill to continue expansion was voted out of the state legislature April 16 and awaits the governor’s signature. Wisconsin’s new Democratic Gov. Tony Evers included Medicaid expansion in his state budget. Similarly, in North Carolina, Gov. Roy Cooper has vowed to make expansion a priority of his administration.

{mosads}However, new research on the effects of expansion ought to give policymakers pause.

The Wisconsin Institute for Law & Liberty (WILL) released a national study in February that compared private-sector health insurance spending and emergency-room visits in states that have and have not taken Medicaid expansion. Included in the private-sector health insurance spending are services such as hospital care, doctor services and prescription drugs. WILL found that an average increase of $177 per person in this spending occurred after a state expanded Medicaid.  

In a state the size of North Carolina, this would represent an additional cost of about $511 million in current terms shifted onto private health care consumers per year. In Wisconsin, the cost would be about $437 million. These costs, borne primarily by increased insurance premiums and higher prices, are likely to exceed any benefit from expansion that states would see from the federal government through higher reimbursement rates.  

Why has this happened? Those who are pro-expansion, such as the authors of this study from University of Wisconsin Madison, will argue that expansion could “save nearly $100 million annually because of a reduction in uncompensated care costs, and that these savings exceed the costs to private insurers” — or, in other words, expansion would drive up the use of preventative care and thus drive down more-costly emergency care.

However, WILL’s study found the exact opposite happened. Emergency room visits in expansion states increased by about nine per 1,000 residents after expansion. This makes sense, since those with Medicaid, who bear no cost for using these services, have little incentive not to seek out any type of care, regardless of cost. Moreover, Medicaid reimbursement rates tend to be significantly lower than the reimbursement rates negotiated with private providers for all forms of care. Health care providers pass these increased costs along to private-sector consumers.

Other studies offer similar evidence. In August 2018, the Goldwater Institute published a study warning other states not to fall into the trap Arizona did when it passed expansion based on the assumption that more people receiving Medicaid would mean fewer uninsured seeking services and, therefore, fewer costs passed onto those on private insurance through increased premiums. According to the Goldwater study, with expansion, “Total charges for all payment groups (public and private) went up, but Medicaid charges in Arizona’s emergency departments alone, increased more than 300 percent.”  

Even more recently, the Colorado Department of Health Care Policy and Financing released the findings of a study showing that, although reimbursements to hospitals went up after Medicaid expansion, prices jumped even more.

Some may make the case that these additional costs are worthwhile because of the potential health benefits that can accrue to citizens from expansion. But the evidence on this point is decidedly mixed, with some of the most comprehensive studies finding no evidence of improved health outcomes, and Medicaid participants valuing the benefits far below their costs. A recent study of California’s Medicaid expansion found no “significant improvements in patient health” and “substantially greater hospital and emergency room use.” 

Instead of encouraging people to depend on the government for health care, policymakers in non-expansion states should promote affordable alternatives to traditional health care. One great example of such alternatives are Short Term Limited Duration (STLD) plans, which were made far more viable with changes in policy by the Centers for Medicare & Medicaid Services (CMS) under President Trump. STLD plans have freedom from most of the onerous mandates of ObamaCare, meaning that they can be offered to consumers at a much lower cost — sometimes as much as 90 percent cheaper than ObamaCare plans. Under President Trump, the “term” of these plans has expanded from three months to one year, and the plans can be renewed for up to three years.

Non-expansion states have the benefit of looking to the example of other states in evaluating whether or not to expand Medicaid. There is a growing body of evidence that expansion means higher costs for health care consumers and added pressure on state budgets. At the same time, there is not convincing evidence that Medicaid expansion is improving health outcomes.

The solution to rising health costs and expanding access to health care cannot be doubling down on Medicaid. It is only through market forces, competition, price transparency and variety through deregulation that health care costs will decrease and access will be widespread.

Will Flanders is the research director at the nonprofit Wisconsin Institute for Law & Liberty. Follow him on Twitter @WillFlandersWI.